Agricultural Productivity and Growth

Agriculture is considered to be a primary industry in economic terms. In that, natural materials are extracted to be made into commodities or secondary goods. However, with respect to agriculture, the truth is that there has never been fully commoditized. Every attempt to commoditize produce has been met by innovators who create a superior type of product, be it a juicier apple or a seedless watermelon. Today, that innovation has resulted in better quality coffee beans and seemingly inferior products being priced at a premium due to being free of any pesticides.

The key lesson from an investment perspective is that agriculture remains a critical component of an economy, even as an economy develops. The key is that instead of growing maize, a country may evolve to grow higher-value products such as wine grapes or coffee beans.

We looked at which countries over the past 25 years experienced the highest level of growth in agricultural yield (specifically cereal yield per hectare) and also looked at which countries had the highest yield today. We also looked at productivity per worker and which countries experienced the highest growth in this area over the past 25 years.

The countries that experienced the fastest growth in cereal yield per hectare are shown below.

The countries with the most rapid growth in cereal yields can attribute this to a variety of factors including fertilizers, better-yielding seeds as well as the mechanization of the agricultural sector. Oman, in particular, was tremendously successful at increasing cereal yields over the past 25 years. This is shown in the figure below which showcases the countries with the highest and lower cereal yields, which is measured as kilograms per hectare.

Oman is the only country that was both one of the top growth countries which then resulted in it having one of the highest cereal yields of all countries. Countries like the Gambia and Sao Tome and Principe experienced negative growth in cereal yields and are now within the bottom 10 of all countries. The entire dataset can be found here.

Agricultural productivity as measured by value added per worker in 2010 $USD is shown below for the top 10 and bottom 10 countries. What is noteworthy is the magnitude of the difference between the bottom 10 and top 10.

Looking at the growth of productivity over the past 25 years is shown below. The top 10 countries are much more uniform in terms of their growth, indicating that there is a ceiling on the degree to which the industry can improve absent material changes in innovation.

There a few notable insights from these figures. Armenia and Lebanon had the fastest growth over the past 25 years and today are among the top 10 countries in terms of agricultural productivity. Norway and Denmark have had high productivity for a very long time, but have still managed to experience 25 years of very high growth.

One thing that has been noticed throughout the data is that small island nations such as Cape Verde and Mauritius are incredibly unproductive and there is no economic rationale for these countries to pursue agriculture. However, political policy and subsidies encourage agriculture when there is no economic rationale to do so.

We look at the large countries which have low productivity or crop yield; countries such as DRC, Nepal, Mozambique, and Madagascar and see tremendous opportunity. Be it investing in farm machinery or building an infrastructure that would promote the use of machinery (electricity grid, purchase financing, credit scores) are incremental investments that result in huge gains in economic growth and agriculture productivity and yield. For a country like Lebanon, where a quarter of the population is engaged in agriculture, improving this industry has had material consequences in the quality of life for the average Lebanese person. This is despite all the polticial issues within Lebanon and in its neighbors. Lebanon’s GDP per capita in 1990 was $1,000 and is today approximately $10,000. Underpinning this tremendous growth in living standards is agriculture. Underestimating the impact of agriculture is a material error in any economic plan.